Rupee PLUMMETS BELOW 90! RBI's Bold Move Sparks Currency Shockwave - What Investors NEED To Know NOW!

RBI Actions and Rupee Volatility

The Reserve Bank of India (RBI) announced a 25 basis point reduction in its benchmark repo rate, bringing it down to 5.25%. Alongside this monetary policy adjustment, the central bank revealed plans for a three-year, $5 billion buy-sell swap operation to be conducted on December 6. These measures, intended to manage liquidity and economic growth, triggered immediate reactions in the currency markets.

Rupee Briefly Breaches Key Level

Following the announcements, the Indian Rupee experienced significant volatility, briefly trading below the crucial 90-per-dollar level. It touched an intraday low of 90.02 against the US dollar on Friday, having earlier advanced to 89.70. The currency had closed at 89.98 on Thursday, after hitting a one-day low of 90.42, pressured by dollar demand amid foreign outflows and trade deal uncertainties.

Expert Insights on Currency Movement

Ritesh Bhanshali, director at Mecklai Financial Services, commented on the rupee's movement, stating that while the breach of 90 is "not positive," the immediate negative impact is contained, attributing this to potential RBI intervention. He suggested that the rupee's range might be capped between 90.50-91.20 on the upper side and 88.00 on the lower side, indicating an expectation of RBI support around the 90.50 level.

Broader Economic Outlook

In addition to the rate cut and swap, the RBI also announced plans to purchase Rs 1 lakh crore worth of bonds through Open Market Operations, aiming to inject liquidity into the system. Despite the short-term pressure on the rupee from the swap operation and ongoing market forces, the central bank forecasted a modest current account deficit for the fiscal year 2026. This optimistic outlook was supported by expectations of healthy services exports and strong remittance inflows.

Impact

• The repo rate cut could lead to lower borrowing costs for businesses and consumers, potentially stimulating economic activity.
• The $5 billion buy-sell swap is expected to inject dollars into the system initially, which could offer temporary support to the rupee, but selling dollars back later might put pressure on the currency.
• The rupee's brief fall below 90 signifies market concern over economic fundamentals or global factors, though RBI intervention may mitigate further depreciation.
• A modest current account deficit forecast is positive for currency stability and overall economic health.
• Impact Rating: 7/10

Difficult Terms Explained

• Repo Rate: The interest rate at which the Reserve Bank of India lends money to commercial banks. A cut usually aims to boost economic growth by making borrowing cheaper.
• Basis Points: A unit of measure used in finance to describe small changes in interest rates or yields. One basis point is equal to 0.01% (1/100th of a percent).
• Buy-Sell Swap: A transaction where a central bank buys a foreign currency (like the US dollar) from banks now and agrees to sell it back to them at a specified future date and rate. This can manage liquidity and currency supply.
• Current Account Deficit (CAD): The difference between a country's exports and imports of goods, services, and transfers. A deficit means a country imports more than it exports.
• Open Market Operations (OMOs): A tool used by central banks to manage liquidity in the economy by buying or selling government securities. Buying securities injects money, while selling them withdraws money.